Are you prepared to pay the same price for an ebook as for the print book?

[pwalker8]

Originally Posted by pdurrant

Yes, overhead expenses are fixed. No, they are not $50,000 per title.

From the article: "At several publishing houses, they have a standard “overhead” charge of about $2 per book, or $50,000 per title."

The author of the article has the overhead right ("about $2 per book") but has then confused matters by adding "or $50,000 per title" without specifying whether that's a minimum or a maximim.

It clearly can't be a minimum. No publishing house could survive with a minimum overhead of $50,000 per title. It must be intended either as a maximum, or as the number from the example that follows.

$50,000 per title as the assigned overhead is a figure that I've read multiple places. The overhead is neither a minimum or maximum, but a fixed cost. In theory it comes from adding up the fixed expenses of the publishing house, divided by the number of titles they publish in a year. It's for things like office space, staff salary, and any number of things that are not for a specific title.

[shalym]

Originally Posted by pwalker8

$50,000 per title as the assigned overhead is a figure that I've read multiple places. The overhead is neither a minimum or maximum, but a fixed cost. In theory it comes from adding up the fixed expenses of the publishing house, divided by the number of titles they publish in a year. It's for things like office space, staff salary, and any number of things that are not for a specific title.

Harper Collins publishes 10,000 new books per year, according to their website. If the overhead on *each book* is $50,000, that's $500,000,000 in operating expenses. According to you, that doesn't count things that are for a specific title, so it doesn't count the amount paid for a book cover, or ink to print a specific book, or paper for a specific book...or does it? If that *does* cover the ink, paper, cover artist, warehouse space, shipping expenses, then what expenses for a specific title are you talking about? Is it just the author's advance that you're talking about?

If the ink, paper, and warehouse space *are* included in those fixed expenses, then the argument that ebooks should be cheaper is valid. If they are not, then the publishing companies are wasting money on fancy offices in New York City and high salaries for their executives, and they deserve to fail.

If they are spending more money on things that are not specific to publishing than they are on the actual business of publishing, then, again, they deserve to fail.

Shari

[darryl]

Originally Posted by pwalker8

$50,000 per title as the assigned overhead is a figure that I've read multiple places. The overhead is neither a minimum or maximum, but a fixed cost. In theory it comes from adding up the fixed expenses of the publishing house, divided by the number of titles they publish in a year. It's for things like office space, staff salary, and any number of things that are not for a specific title.

I accept of course that you have seen this particular figure bandied about, though I personally don't recall having come across it. I suspect that if a publisher assigned this as a fixed internal charge per book it has little if any basis in actual costs.

[DMcCunney]

Originally Posted by shalym

If the ink, paper, and warehouse space *are* included in those fixed expenses, then the argument that ebooks should be cheaper is valid.

Print/Bind/Warehouse/Distribute is about 10%-15% of the average book's budget. Dropping print editions entirely would not provide the costs saving a lot of folks think. As mentioned earlier, 80% or more of a book's costs are incurred before it ever reaches publication, in print or electronic form.

If they are not, then the publishing companies are wasting money on fancy offices in New York City and high salaries for their executives, and they deserve to fail.

They do?

Publishing is not a "work from home" business for the most part. Those fancy offices in NYC are historical artifacts, because that's where those publishers originated. (And I've been in some of them. The ones I've seen are small, cramped, and anything but fancy. Some of them relocated from higher cost midtown locations to lower cost space elsewhere in the city.)

The people who work there need to be folks who live near enough to commute there. The vast majority are not upper level folks commanding huge salaries. Editors, Art Directors, Copy Editors, Proofreaders, DTP specialists, and the like are middle class positions with middle class salaries.

So the publisher decides costs are too high and relocates from expensive NYC office space to somewhere else. Where do they go? And more important, what happens to those who work there? If where they go is a significant distance, it will effectively mean pulling up stakes and relocating for their employees. Many may simply not be able to, as they have existing commitments like houses and kids in school.

A late friend was an acquisitions editor at Baen Books. Baen was maintaining editorial offices on Riverside Drive in the Bronx, north of Manhattan. Baen relocated to NC in search of lower costs. My late friend was not pleased and declined to follow. (She'd have been better off relocating all told, but had reasons good to her for staying put.)

If they are spending more money on things that are not specific to publishing than they are on the actual business of publishing, then, again, they deserve to fail.

Define "specific to the business of publishing".

But once again, the equation is likely more complex than you assume.
______
Dennis

[darryl]

Originally Posted by DMcCunney

Print/Bind/Warehouse/Distribute is about 10%-15% of the average book's budget. Dropping print editions entirely would not provide the costs saving a lot of folks think. As mentioned earlier, 80% or more of a book's costs are incurred before it ever reaches publication, in print or electronic form.
______
Dennis

Dennis,

I'd be interested in any comments you may have about the figure of $50,000 per book fixed overhead mentioned in other posts.

[DMcCunney]

Originally Posted by darryl

I accept of course that you have seen this particular figure bandied about, though I personally don't recall having come across it. I suspect that if a publisher assigned this as a fixed internal charge per book it has little if any basis in actual costs.

It has basis. Any company of any size will calculate a Cost Of Goods Sold for things they make. They have to understand what it cost them to make something when they are deciding how to price it.

Some costs are directly applicable to whatever it is - raw materials, tooling, labor expended in making it, required capital expenditures to gear up to make it - and some costs are general corporate overhead that can't be directly assigned to a specific product. An allocated share of corporate overhead will become a part of Costs of Goods Sold. (And note that taxes are one of those overhead costs that get allocated. The net profit that becomes the bottom line cherished by financial types if what is left over after the taxes are paid.)

Any decently managed company will be aware of what it's overhead is and be looking for ways to reduce it, but some things that may look like wins to the outside aren't as simple as they sound. But they won't just pull an overhead number out of their butt. They will know what their "not directly assignable to the product(s) being made" costs are when they do the allocation of overhead.

(And allocating overhead becomes political. At a former employer, there was a clear understanding that investment in new technology needed to be made. My boss, who was SVP Operations, was more aware than most, but dragging his feet. That changed at a meeting where the company's CFO said it was clearly understood that the investment was needed, and would be carried out at a corporate level. My boss changed from foot dragging to "When can we start?", as soon as it was clear the costs would not come out of his budget. I managed to keep a straight face and not laugh out loud, but it was a challenge.)
______
Dennis

[DMcCunney]

Originally Posted by darryl

Dennis,

I'd be interested in any comments you may have about the figure of $50,000 per book fixed overhead mentioned in other posts.

It sounds to me like a number pulled out of someone's butt, as a best guess in absence of knowledge. I have no idea what that number ought to be, but suspect it will continuously vary as conditions change, and will not be the same for all houses.

See my prior message for commentary about Cost Of Goods Sold.
______
Dennis

[shalym]

Originally Posted by DMcCunney

Print/Bind/Warehouse/Distribute is about 10%-15% of the average book's budget. Dropping print editions entirely would not provide the costs saving a lot of folks think. As mentioned earlier, 80% or more of a book's costs are incurred before it ever reaches publication, in print or electronic form.


They do?

Publishing is not a "work from home" business for the most part. Those fancy offices in NYC are historical artifacts, because that's where those publishers originated. (And I've been in some of them. The ones I've seen are small, cramped, and anything but fancy. Some of them relocated from higher cost midtown locations to lower cost space elsewhere in the city.)

The people who work there need to be folks who live near enough to commute there. The vast majority are not upper level folks commanding huge salaries. Editors, Art Directors, Copy Editors, Proofreaders, DTP specialists, and the like are middle class positions with middle class salaries.

So the publisher decides costs are too high and relocates from expensive NYC office space to somewhere else. Where do they go? And more important, what happens to those who work there? If where they go is a significant distance, it will effectively mean pulling up stakes and relocating for their employees. Many may simply not be able to, as they have existing commitments like houses and kids in school.

A late friend was an acquisitions editor at Baen Books. Baen was maintaining editorial offices on Riverside Drive in the Bronx, north of Manhattan. Baen relocated to NC in search of lower costs. My late friend was not pleased and declined to follow. (She'd have been better off relocating all told, but had reasons good to her for staying put.)


Define "specific to the business of publishing".

But once again, the equation is likely more complex than you assume.
______
Dennis

The $50,000 per book number comes from this thread. The 10,000 books per year number comes from Harper Collins web site. The $500,000,000 number comes from simple math.

Why do their offices need to be in NYC? Why aren't copy editors and proof readers work from home jobs? What is it about those jobs that requires that they be done at the office, instead of at home?

"Specific to the business of publishing" means finding and paying authors, editing and typesetting/formatting, finding and paying cover artists, and printing, storing, and shipping the books.

None of that requires having a large office in NYC, or London, or Paris.

Shari

[darryl]

Originally Posted by DMcCunney

It sounds to me like a number pulled out of someone's butt, as a best guess in absence of knowledge. I have no idea what that number ought to be, but suspect it will continuously vary as conditions change, and will not be the same for all houses.

See my prior message for commentary about Cost Of Goods Sold.
______
Dennis

That's what I thought about the figure too. I've had some experience with internal allocation of overheads and other costs, and have come across more than a few cases where the allocation is not meant to be accurate but serves some other purpose, such as minimising taxation or achieving some political aim. It does occur to me that players in an industry without price competition would not exactly encourage regulatory attention by publicising very high costs to all and sundry, nor would this encourage potential new entrants. And, of course, the actual figures are closely guarded secrets.

Thanks for your reply. It is not the practice of allocating overheads which is of course essential which I question. It is simply this particular figure. I should have been clearer.

[darryl]

Originally Posted by shalym

The $50,000 per book number comes from this thread. The 10,000 books per year number comes from Harper Collins web site. The $500,000,000 number comes from simple math.

Why do their offices need to be in NYC? Why aren't copy editors and proof readers work from home jobs? What is it about those jobs that requires that they be done at the office, instead of at home?

"Specific to the business of publishing" means finding and paying authors, editing and typesetting/formatting, finding and paying cover artists, and printing, storing, and shipping the books.

None of that requires having a large office in NYC, or London, or Paris.

Shari

Thanks for both this post and your previous one, which are accurate and to the point. I think the New York HQ is one element which is often mentioned, but is more relevant as a symbol of the profligate corporate culture of the Publishers concerned. What I believe is that over decades without price competition they became addicted to a bloated and exploitative business model in an industry over which they held a stranglehold. That business model allowed them to keep virtually all of the revenue the industry produced, wihout the need for efficiency. They now need to compete with one of the most innovative, efficient and ruthless companies the world has known, as well as many innovative players who are adapting to the new conditions much better. As their blockbuster authors cease to write and physical bookstores become less and less important, they will need to compete both to procure new authors on the cost side of the equation and compete with Indie pricing on the revenue side. To do this they must radically change their culture to become competitive, including slashing their bloated cost structures.

[DMcCunney]

Originally Posted by shalym

The $50,000 per book number comes from this thread.

And I take it with a sack of salt. See my earlier commentary.

The 10,000 books per year number comes from Harper Collins web site.

And that number is indicative of a problem facing publishing for as long as I've been paying attention: too many books chasing too few readers.

I think I mentioned upthread seeing stats from the American Bookseller's Association in the days before eBooks were even possible, and all books were print editions from trade publishers, that over 50,000 new titles were being issued in the US every year. That was about a thousand new books a week. Who would buy and read them all?

The answer is that the vast majority weren't bought and read. They failed to reach an audience, died on the shelves and were returned for credit. Publishers all crossed appendages that enough titles they issued would sell to cover the losses on the others and make them enough money to remain in business.

Everyone knew too many books were being published, but no one wanted to be the first to trim their lines. Because those were also the days when discovery of new titles was what a reader did browsing in a bookstore. The critical resource was display space on shelves, and if you published fewer titles, you would lose the shelf space and not get it back.

Periodically, someone would be the first to bite the bullet and trim their lines, and everyone else would follow suit in a wrenching wave of consolidation. Books went out of print, authors got dropped from contract, and publishing employees got laid off because less books required less people to produce them.

And those waves of consolidation have continued, with houses folding, or being bought by bigger houses, as everyone tries to get economies of scale and reduce costs. It's why we have a Big 5 in traditional publishing, which could very well become a Big 4.

The $500,000,000 number comes from simple math.

Understood.

Why do their offices need to be in NYC?

They don't, in a practical sense. But where would you suggest they move to?

This is the tip on an iceberg. I live in NYC. One of the main businesses in NYC is banking and finance. The city has been carefully dancing around the big banks and financial houses on taxes. There is nothing about the business that requires it to be done from NYC, and indeed, many back office functions have already been moved to areas where costs are lower.

The city is aware that if it increases their tax burden high enough, they might just relocate their headquarters. There is little they do that can't be done from somewhere else. The city doesn't have a lot of leverage.

An old friend got bit by this in MA. He was a senior security researcher for an insurance company and his offices were in Boston. The state boosted corporate taxes on his employer. His employer closed the offices where he worked and relocated the functions to TX, with a more favorable business climate. He had house, wife, and kid, and was disinclined to pull up stakes and move. He's involved in a consultancy these days which is increasingly embedded in another financial outfit, but things were dicey for a while, and I don't believe he's making what he once did.

And a factor involved in relocation to save costs is that a lot of that office space is under long term leases, that you don't just walk away from. The penalty costs of breaking the lease will be ferocious.

Why aren't copy editors and proof readers work from home jobs? What is it about those jobs that requires that they be done at the office, instead of at home?

Why are an awful lot of jobs not work from home jobs?

Many could be, but it's an uphill slog to get employers to embrace the notion.

And copy editors and proofreaders are increasingly contracted out services.

One old friend was VP of an editorial production house that offered typesetting, copy editing, and proofreading to publishers. She complained on a mailing list I'm on that is mostly publishing folk about proofreading increasingly being dropped to cut costs. Another list member was an editor at a trade house, and said "But such things are part of the book's budget, and always done!" "Maybe they still are in your house", was the reply, "but I'm the one at my company dealing with publishers who used to pay us to do it and don't anymore!"

Another old friend is a copy editor these days. He was an IT guy at a major bank, and survived through several rounds of mergers and layoffs. But his function got transferred to Tampa, FL, and he wasn't interested in relocating. The problem was that the job he did was highly specialized, consolidation in the industry had reduced the need for people like him, and there was no way he would find another job doing it. He took courses in copy editing and proofreading, and does it freelance as a contractor. But when he gets a job, he's expected to report to the publisher's office to perform it.

The underlying assumption is that employees need to be in the same place so face to face interaction can occur.

"Specific to the business of publishing" means finding and paying authors, editing and typesetting/formatting, finding and paying cover artists, and printing, storing, and shipping the books.

Some of those things are external to the publisher itself. Most don't do their own printing, but contract it out. The same with warehousing and distribution.

An increasing amount of stuff is getting sub-contracted. One house has "Consulting Editors". They aren't on the payroll, don't report to an office, and are paid on a book by book basis, to edit books they acquire.

None of that requires having a large office in NYC, or London, or Paris.

And if you eliminated those large offices, you still wouldn't see prices drop to the level you might hope for.

[DMcCunney]

Originally Posted by darryl

That's what I thought about the figure too. I've had some experience with internal allocation of overheads and other costs, and have come across more than a few cases where the allocation is not meant to be accurate but serves some other purpose, such as minimising taxation or achieving some political aim.

Yes, It can be a morass.

Yet another old friend had a first job out of college working for a magazine publisher that produced men's magazines with lots of color pictures of nude women. He realized very quickly that the official numbers were works of fiction. The magazine publisher was a wholly owned subsidiary of a Mafia family, and existed as a way to launder cash for the illegal sides of their business. (The VP running the outfit had a portrait of John "the Teflon Don" Gotti on his office wall till Gotti finally got busted and jailed.) They were deliberately doing things as inefficiently and expensively as possible to give themselves more opportunity to launder funds.

But even if there are two sets of books, someone needs to have a clear idea of what the costs really are.

It does occur to me that players in an industry without price competition would not exactly encourage regulatory attention by publicising very high costs to all and sundry, nor would this encourage potential new entrants. And, of course, the actual figures are closely guarded secrets.

Just to clarify, do you consider publishing to be an industry without price competition?

Thanks for your reply. It is not the practice of allocating overheads which is of course essential which I question. It is simply this particular figure. I should have been clearer.

You were clear enough.
______
Dennis

[darryl]

Originally Posted by DMcCunney

Just to clarify, do you consider publishing to be an industry without price competition?

Short answer. Not any more.

[nabsltd]

Originally Posted by DMcCunney

Book publishing is like movie production, TV production, or record albums.

So, what you're saying is that publishers never really lose money on any books...they just fudge the accounting to make it look like most authors never earn back their advance.

Because, that's the way it has been for almost all movies, TV shows and musical recordings for the last 50 years.

[darryl]

Originally Posted by nabsltd

So, what you're saying is that publishers never really lose money on any books...they just fudge the accounting to make it look like most authors never earn back their advance.

Because, that's the way it has been for almost all movies, TV shows and musical recordings for the last 50 years.

I can't speak for what my friend was saying. But I suspect that your statement is not far from accurate. I don't doubt that there are some books where money is actually lost, but I would be surprised if there are that many. The large Publishers had things their own way for a vary long time, just like the large players in the movie and music industry. For a long time I think the public was encouraged to view a book not earning out as being synonymous with a loss by the Publisher on that book. As we can see from this thread, this still seems to be quite a common misconception, even amongst intelligent well informed people. It's probably one of these things which is usually taken at face value and not usually questioned. Unfortunately figures are not available to show just how many books do in fact make a loss.